Investment Rating - The report maintains an "Outperform the Market" rating for the food and beverage sector [1][4][5]. Core Views - The food and beverage sector is experiencing a divergence in fundamentals, with beverages outperforming food and alcoholic beverages. The report emphasizes the importance of monitoring third-quarter performance [2][3]. - The report highlights the potential for stock price increases due to low expectations and the possibility of demand recovery, particularly in the snack, beverage, and frozen food segments [3][4]. Summary by Sections 1. Sector Overview - The food and beverage sector saw a slight decline of 0.16% this week, with A-shares down 0.20% and H-shares up 0.42%, indicating defensive allocation demand [1]. - The top performers in the sector included Zhuangyuan Pasture (21.07%), Yangyuan Beverage (16.80%), and Guangming Meat Industry (6.48%) [1]. 2. Alcoholic Beverages - The report notes that the liquor sector is still in a bottoming phase, with a focus on changes in the industry as the autumn sugar market approaches. Recommendations include Luzhou Laojiao, Kweichow Moutai, and Shanxi Fenjiu for their strategic advantages and growth potential [2][10]. - The report anticipates a 15-20% decline in sales volume during the upcoming holiday season, with a shift towards mass-market consumption [10]. 3. Beverages - The beverage sector is experiencing stable demand recovery, with leading companies like Nongfu Spring and Dongpeng Beverage showing strong performance. The report suggests focusing on the growth of sugar-free tea and energy drinks [2][15]. - The beverage sector's revenue increased by 18% year-on-year in the first half of 2025, despite entering the off-season [15]. 4. Snacks - The report emphasizes the importance of selecting strong alpha stocks in the snack sector, particularly in the konjac snack category, where leading companies like Weilong and Yanjinpuzi are expected to perform well [3][12]. - The snack industry is transitioning from channel-driven growth to category-driven growth, increasing competition among brands [12]. 5. Dairy Products - The dairy sector is seeing a gradual recovery in demand, with a focus on leading companies like Yili, which are expected to benefit from supply-demand improvements by 2025 [14]. - The report highlights the importance of monitoring inventory clearance and new product performance in the dairy supply chain [13][14]. 6. Investment Recommendations - The recommended investment portfolio includes Baba Food, Dongpeng Beverage, Weilong, and Luzhou Laojiao, which have shown strong performance and positive earnings expectations [3][16]. - The report suggests that any changes in supply and demand dynamics could catalyze stock price increases, particularly in segments with high growth potential [3][4].